Thursday, November 15, 2012

Twinkies, Redux

A couple days ago I posted about the striking Hostess workers. I lampooned the them--what good is striking if your company goes broke in the process? Yay, you won--we call that a Pyrrhic victory, though.

Hostess has set a deadline of 2 p.m. today for workers to return to work or the company will file to liquidate the company in bankruptcy court.

The Irving, Texas-based company, which employees nearly 300 workers in Sacramento, will file a motion to liquidate the company on Friday if not enough striking employees return today to allow the food maker to resume normal operations.

We have a Hostess bakery here in Sacramento. When I was a kid I'd love it when we drove nearby because the smell of baking bread was absolutely delicious. Someone later decided that such a smell was "pollution", though, and the bakery had to refit in such a way that we couldn't smell the bread anymore. That memory is just one of those things from my childhood that's never left me.

Are there to be no more Twinkies, no more Ho-hos, no more Ding Dongs, no more Wonder Bread? I'll let you know when I know.

Adieu, Twinkies, at least for now. Hostess Brands said Friday it has asked a court's OK to liquidate the company, spelling the possible end for the iconic, yellow, cream-filled delight.

The move shuts down one of the nation's oldest and largest producers of baked goods. Founded in 1930, it produces such well-known brands, aside from Twinkies, as Ding-Dongs, Ho Ho's, Sno Balls and Donettes, not to mention Wonder bread, which the company says is the best-selling white bread in the United States.

In a statement, Hostess said its bakery operations have been suspended at all plants and that it would lay off most of its 18,500 workers to focus on selling its assets. It said it has filed a motion with the U.S. Bankruptcy Court seeking permission to close its business and sell its assets, including 33 bakeries and 565 distribution centers.

Perhaps one of the most interesting aspects of the just announced Hostess liquidation, one that will be largely debated and discussed in the media, or maybe not at all, is the curious cast of characters and the peculiar history of this particular bankruptcy. Some may not be aware that the company's Chapter 11 (or colloquially known as 22) bankruptcy filing this January, which today became a Chapter 7 liquidation, was the second one in the company's recent history, with Hostess, previously Interstate Bakeries, emerging from its previous protracted multi-year bankruptcy in 2009. What is curious is that its emergence had all the drama of a anti-Mitt Romney PAC funded thriller, with a PE firm, in this case Ripplewood holdings, injecting $130 million in order to obtain equity control of Hostess as it was emerging last time. There were also more hedge funds, investment banks, strategic buyers, politicians involved in this particular story than one can shake a deep fried numismatic value Twinkie at. More importantly, however, as America has been habituated following the last season of the reality TV show known as the presidential election, if Private Equity then "bad." Only this time there is a twist: because it wasn't really PE that was the pure evil in the Obama long-term campaign, it was associating PE with Republicans, and thus: with jobs outsourcing. And here comes the Hostess twist: because Tim Collins of Ripplewood, was a prominent Democrat, a position which allowed him to get involved in the first bankruptcy process in the first place, due to his proximity with the Teamsters' long-term heartthrob Dick Gephardt (whose consulting group just happens to also be an equity owner of Hostess). In other words, the traditional republican-cum-PE scapegoating strategy here will be a tough one to pull off since the narrative collapses when considering that it was a Democrat who rescued the firm, only to see it implode in a trainwreck that has resulted in the liquidation of a legendary brand, and 18,500 layoffs.

But it only gets better. Because the full cast of characters involved here is quite stunning....

3 comments:

According to my business professor husband, the family got out of the company years ago. When(IF) the company goes bankrupt, it will go on the market, the family will buy the company for a song, without any kind of union obligations. The union can start negotiating again.

Since Hostess is based in nearby Irving we have more news. First, 8000 bakers refused what amounted to an 8% reduction in insurance, much in the same way that Wisconsin teachers were asked to actually contribute to their insurance and retirement plans. The company was already in bankruptcy and came up with the plan that OTHER UNIONS APPROVED. Only this union refused. I guess they thought it was a big old game of Chicken. The problem is, when you honestly do not have the money to keep things running, you can't pay suppliers and plants lie idle. That too is another more painful path to bankruptcy. So the management at Hostess opted to liquidate. They will pay off suppliers and the 18000 employees at their bakeries and outlet stores will be out of work. The Left will vilify them, but with the company out of business, who is left to demonize? There's an object lesson in this for liberals, which I am afraid goes over their heads. Profit makes jobs. Take away profit and jobs go away. There is no money tree, most companies don't have endless resources. And for this the jobless rate increases for Hostess employees directly and for all their suppliers, all the companies that make their equipment and keep it running, all the truckers that transport Hostess products, all the other ancillary companies that had Hostess as a customer. Nice going unions. If we are lucky, Mexican run super bakery Bimbo will buy out the rights to make Hostess treats under their own label and since their US headquarters are in Texas, expect them to run the baked goods from here. Workers in union states lose AGAIN because of the greed of union leadership.